co-founder, buy-out, negotiation, franceTwo friends of mine launched their startup in 2014, I was helping them on my spare time and six months later, I started helping them full time but using a “consultant contractor” instead of a real contract (We’re in France). Officially, I’m not a co-founder but I helped them from the very beginning.
Three years later, someone wants to buy us out.
It’s all fine and well but we are splitting the shares depending on how much money we invested and not the work we’ve done. They did it properly but I feel like I have been neglected as I was just being “nice” as they were friends. Like I bought a laptop with my own money where I could have instead invest it in the company, get shares, and then the company would have bought it (At the time, that would have been 2-3% more). Plus a lot of other small things where in the end I’ve got 5% and they have 35% each.
Now here’s the situation, because of the work I’ve done as a “consultant”, they forgot to make me sign a paper stating that I gave up all rights on the code I wrote. The lawyers wants now this paper signed as if it was made in 2014.
So I’ve got leverage and here’s my question, should I use it to negotiate or should I let it go ?
I’m not money oriented but feel like I deserve a bit more for the work I’ve done.
Talk to an attorney and a tax advisor, and do so quickly. The first because there probably are a gazillion caveats that you can use to resist signing anything you’re not comfortable with. Especially if, like you’re suggesting, t’s aren’t crossed and i’s aren’t dotted - more so even if you weren’t getting paid properly. The second to become cognizant on the intricacies of receiving a big wad of cash without paying tons of taxes.
With these extra pieces of information you’ll be in a much stronger position to enter negotiations no matter how things go.
If you value your friendship with the two cofounders in any way, the only sane way to approach this is to have a gentle but honest conversation with them. Don’t be confrontational or vindictive. True, you might not guilt them into giving you as much as you’d like in doing so - you’re begging them to throw you a bone, after all. But anything short of that and they’ll be throwing bird names at you for extorting them in no time. In the end you’ll likely need to suck it in, gnaw on whatever they throw at you, and file the whole thing under “live and learn.”
If you do not value your friendship on the other hand, or end up offended by what they’re offering you, your hand is potentially strong. The alternative, for them, will be to risk scaring off their buyer. Only go down that road at the side of an attorney - one that’s a good negotiator, at that.
I recommend using your leverage but doing so in a judicious way that will hopefully make everyone happy and such that everyone stays friends.
I’d approach your founders and say, look, we messed up, we need to fix this. Then suggest a fair approach for fixing it. For example you could do this:
I’m assuming you were not paid for your consulting work. If you were paid, then that changes everything.
This is the time for “tidying up,” with the cofounders wanting a “release” for the source code, and you wanting an accounting of, and compensation for, your previously unrecorded monetary investment.
I’m going to assume of the time being that you were paid, as a contractor out of the the co-founders 70% investment. If not, you have a claim for labor, and you might want to follow Jeff’s answer. (The arrangement with shares being allocated for monetary investment, and not work done suggests that this is not the case.)
Basically, you are entitled to reimbursement for the money you put up for the laptop and “other small things.” In constructing the example, I’ll use the following rounded numbers to keep things simple.
Let’s say that the total recorded investment was $100,000, with you putting up $5,000 for 5% of the company, plus another unrecorded $1,000. The buyout offer is for $300,000, or triple money. In this example, you would get $15,000 for your $5,000 investment. The question is, what happens to the extra $1,000 that you put up. There are three main possible outcomes.
1) The co-founders will reimburse you dollar for dollar (or Euro for Euro) for the money that you actually laid out, or $1,000 in total. That is the minimum you should expect. If they don’t agree to at least this much, they’re unfair.
2) The best case is that they will honor your $1,000 outlays as “investment,” and let it triple to $3,000. If that’s the case, they are being very fair.
3) An intermediate outcome is that they agree to split the difference at $2,000, or some number between $1,000 and $3,000. They might argue that the “investment” took place over time, and deserves partial, and not full credit. This is the expected outcome.
No matter what, you will learn where you stand with these people, and whether or not to do business with them again. This may be the most valuable lesson. And in their shoes, I would offer you option 2. Good luck.
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